OUR STANCE

Betting on some luck

Published: Friday, June 1, 2012 at 6:30 a.m.

Last Modified: Thursday, May 31, 2012 at 9:16 p.m.

Luck was on Florida’s side once again last weekend when Tropical Storm Beryl rolled ashore in Jacksonville, kicking off the hurricane season five days ahead of today’s “official” start but doing little damage.

For the past six hurricane seasons, luck has smiled on Florida by sparing her any major hurricanes and billions of dollars in damage like the state experienced in 2004 and 2005.

But our luck can only last so long.

When that luck runs out, Floridians who hold property, auto and casualty insurance policies will all become victims, even if the storm does not come close to them. That is because the state’s Hurricane Catastrophe Fund, or the CAT Fund, as well as the state-operated Citizens Insurance Corp., now Florida’s largest property insurer, are both woefully underfunded and therefore unable to handle the costs of a major storm.

Floridians already pay “hurricane assessments” on their insurance policies, which are to be used to guarantee the repayament of bonds should hurricane losses mount. The problems is, the assessments are inadequate.

So if the state is struck by a hurricane (or, as in 2004 and 2005, multiple storms), additional assessments amounting to double-digit rate increases would be tacked on to all insurance bills to cover the difference.

It’s not as if state lawmakers are not aware of the problem. A bill was floated in the Legislature this year at the 11th hour, but it was ultimately vetoed by Gov. Rick Scott because it raised rates too much and would have been an unjustified bonanza for banks and insurers.

State Insurance Consumer Advocate Robin Smith Westcott described what consumers face if new assessments, or “hurricane taxes” as they are frequently called, are imposed:

“Even a 1-in-25-year storm is likely to generate assessments for the CAT Fund and would exhaust most of the cash resources of Citizens, thereby increasing the likelihood and magnitude of assessments for a subsequent storm. A 1-in-100-year storm should scare us all because it is estimated to result in residential losses of $25 million.”

Suppose a person pays $1,500 a year in property insurance and $1,500 in auto insurance. In the case of a 1-in-25-year storm, the assessment would be $303, paid over 30 years; in the case of a 1-in-100-year storm, it would be $2,084 over 30 years. If more storms and losses follow — and they most surely would — it would lead to more assessments. (To calculate your estimated assessments, go online to myfloridacfo.com/ica/ and click on Assessment Calculator.)

To make matters worse, inland residents like those of us in Marion County are already subsidizing coastal residents through assessments and would bear an equal burden if new assessments were tacked on, even if our storm damage was less or nonexistent.

There is no mistaking that insurance reform is overdue in Florida. However, it has to be fair reform that does not favor insurers over consumers or vice versa. And while rate hikes will be necessary — adequate capital is the real need — it cannot be overburdensome.

The problem is clear, and the solutions are known. Now it is up to our lawmakers to do what is good for Florida, its insurers and its citizens and finally deal with this potentially devastating economic threat — before our luck runs out.

<p>Luck was on Florida's side once again last weekend when Tropical Storm Beryl rolled ashore in Jacksonville, kicking off the hurricane season five days ahead of today's “official” start but doing little damage.</p><p>For the past six hurricane seasons, luck has smiled on Florida by sparing her any major hurricanes and billions of dollars in damage like the state experienced in 2004 and 2005.</p><p>But our luck can only last so long.</p><p>When that luck runs out, Floridians who hold property, auto and casualty insurance policies will all become victims, even if the storm does not come close to them. That is because the state's Hurricane Catastrophe Fund, or the CAT Fund, as well as the state-operated Citizens Insurance Corp., now Florida's largest property insurer, are both woefully underfunded and therefore unable to handle the costs of a major storm.</p><p>Floridians already pay “hurricane assessments” on their insurance policies, which are to be used to guarantee the repayament of bonds should hurricane losses mount. The problems is, the assessments are inadequate. </p><p>So if the state is struck by a hurricane (or, as in 2004 and 2005, multiple storms), additional assessments amounting to double-digit rate increases would be tacked on to all insurance bills to cover the difference.</p><p>It's not as if state lawmakers are not aware of the problem. A bill was floated in the Legislature this year at the 11th hour, but it was ultimately vetoed by Gov. Rick Scott because it raised rates too much and would have been an unjustified bonanza for banks and insurers.</p><p>State Insurance Consumer Advocate Robin Smith Westcott described what consumers face if new assessments, or “hurricane taxes” as they are frequently called, are imposed:</p><p>“Even a 1-in-25-year storm is likely to generate assessments for the CAT Fund and would exhaust most of the cash resources of Citizens, thereby increasing the likelihood and magnitude of assessments for a subsequent storm. A 1-in-100-year storm should scare us all because it is estimated to result in residential losses of $25 million.”</p><p>Suppose a person pays $1,500 a year in property insurance and $1,500 in auto insurance. In the case of a 1-in-25-year storm, the assessment would be $303, paid over 30 years; in the case of a 1-in-100-year storm, it would be $2,084 over 30 years. If more storms and losses follow — and they most surely would — it would lead to more assessments. (To calculate your estimated assessments, go online to myfloridacfo.com/ica/ and click on Assessment Calculator.)</p><p>To make matters worse, inland residents like those of us in Marion County are already subsidizing coastal residents through assessments and would bear an equal burden if new assessments were tacked on, even if our storm damage was less or nonexistent.</p><p>There is no mistaking that insurance reform is overdue in Florida. However, it has to be fair reform that does not favor insurers over consumers or vice versa. And while rate hikes will be necessary — adequate capital is the real need — it cannot be overburdensome.</p><p>The problem is clear, and the solutions are known. Now it is up to our lawmakers to do what is good for Florida, its insurers and its citizens and finally deal with this potentially devastating economic threat — before our luck runs out.</p>